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Thursday, December 4, 2014

Lower markets after ECB said it will reassess stimulus in 3 months

Dow sank 93, decliners over advancers more than 3-1 & NAZ lost 13. The MLP index was up fractionally in the 486s & the REIT index fell 1+ to the 323s (still close to its multi year highs). Junk bond funds were weak & Treasuries climbed higher. Oil is back down to the 66s & gold was about even.

Fewer Americans filed applications for unemployment benefits last week as employers retained staff to meet domestic demand for goods & services ahead of the holiday season. Jobless claims decreased 17K to 297K from 314K
in the prior period, according to the Labor Dept. The forecast called for a decline to 295K. The
drop in the number of applications back under 300K will help ease
concern that the pace of job-market improvement was cooling heading into
the holiday-shopping season. The 4-week average of claims, a less-volatile measure than the weekly figure, rose to 299K from 294K the week before. The number continuing to receive jobless benefits climbed 39K to 2.36M in the latest week. In
that same period, the unemployment rate among people eligible for
benefits held at 1.8%, where it’s been since early Sep.

ECB policy makers
will gauge the need for further stimulus at the beginning of
2015, pres Mario Draghi said as he unveiled
“substantially” lower forecasts for inflation & growth. The Governing Council will reassess the effects of existing
monetary stimulus “early next year,” Draghi said. He announced that the central
bank has cut all its forecasts for GDP &
price gains thru 2016. Since Jun, the central bank has cut interest rates twice,
offered cheap loans to banks to spur lending & started
purchase programs for covered bonds & asset-backed securities.
With euro-area inflation well below the ECB’s target, Draghi has
warned of a deflationary spiral of falling prices & households
postponing spending. The current measures will have “a sizeable impact on our
balance sheet, which is intended to move towards the dimensions
it had at the beginning of 2012,” Draghi said. That comment altered the ECB’s language on its ambitions
for the size of the balance sheet. It previously stated that
such an increase was “expected” rather than “intended.” The
decision to change wording was not unanimous, Draghi said,
adding later that policy makers wouldn’t need unanimity to start
broad-based asset purchases either. The ECB now predicts the currency bloc economy will
expand 0.8% this year, 1% in 2015 & 1.5%
in 2016. It expects consumer prices will rise 0.5% in
2014, 0.7% next year & 1.3% in 2016. The Governing Council left the main refinancing rate at a record-low 0.05% today. The deposit rate remained at minus 0.2% & the marginal lending rate at
0.3%.

Saudi Arabia has no target for crude
prices & will let the market decide at what level oil should
trade for now, according to a leaker. The comment echoes those made by Oil Minister Ali Al-Naimi,
who said last week that the oil market will “stabilize itself.”
OPEC decided the next day not to cut its oil-output limits,
triggering the biggest one-day drop in futures in more than 3 years. Prices plunged 39% since Jun amid speculation that
Saudi Arabia & other members of OPEC won’t act to ease a supply glut. Saudi
Arabia led Kuwait, the United Arab Emirates & Qatar in
rejecting Venezuela-led calls for OPEC to reduce output.

Today is another reminder that fortunes of the stock market ride on more stimulus. This time comments from the ECB got traders nervous. Fed officials have been hinting at increases in the benchmark rate can come by midyear, only a few months away, something ot think about. More stimulus is needed to extend the market rally